Wouter Fourie and Martin de Kock believe the advisory industry in South Africa is ripe for change. The two founding directors of Ascor Independent Wealth Managers are bullish ahead of the introduction of their country’s first set of regulations capping upfront commission.
In October 2015, South Africa’s financial services regulator, the Financial Services Board (FSB), released a draft of the Financial Sector Regulation Bill – legislation looking at replacing the current commission system with a retail distribution review (RDR) fee-based model similar to the UK.
Phase shifting
Known as the ‘first phase’ of RDR, the document set out 14 proposals, including a 50% cap on upfront commission with the remainder set to be paid on an ‘as and when’ basis. Initially scheduled to come into effect by July 2016, the FSB finally confirmed in August that the proposals would now be phased in by the middle of 2017.
De Kock says this is the right approach, explaining that the regulator has learnt from seeing the implementation of commission caps or outright bans in other markets such as the UK and Australia, where it may have been rushed through.
“The FSB has been clever in the way it is implementing RDR by learning from the mistakes other countries have made. For example, when the UK brought in RDR in 2013, it probably should have been phased in with a longer implementation period,” he says.
Latest data from the UK’s Financial Conduct Authority shows that adviser numbers fell post-RDR, from 33,000 in 2012 to 22,557 in 2016.
Role models
De Kock and Fourie, whose firm is one of a small but growing number of fee-based IFAs in South Africa, predict that given the lengthy industry consultation and phased-in approach, the country’s financial advisory industry is likely to fare better.
“There has been an increased uptake for practices moving to fee-based income models. Many of the larger firms are adapting well to RDR. It is the smaller firms that will struggle. They are heavily reliant on commission and will have to change their business model if they want to survive,” according to Fourie.
For Ascor, which operates an office in the Lynwood area of Pretoria, being a fee-based firm is as much about providing genuine “independent and autonomous” advice – something that is in short supply in South Africa, says Fourie – as it is about being free from the pressure to sell products.
Indeed, the market largely consists of advisory practices such as Old Mutual, PSG Consult, Citadel, Graviton and Consolidated Financial Advisers, as well as numerous product providers, which uniformly use tied financial advisers to sell their risk and investment products.
“Unfortunately, most of these big firms are in some way tied to larger corporates and are not truly independent in the financial advice they provide,” says Fourie.
“In our business, the commodity we sell is professional advice. We are paid for our time, like a doctor, attorney, accountant or any other profession.”
